Tax Impact of Reversion on Martinsville Businesses

Martinsville & Henry County Residents

Office of the Commissioner of the Revenue

Ruth L. Easley, Commissioner

Presentation to City Council January 26, 2021

“All we want are the facts, ma’am.” – Det. Joe Friday, Dragnet

Excerpted Slide from “Transition from City to Town Status PRESENTATION TO THE MARTINSVILLE CITY COUNCIL December 10, 2019”

Proposed Town Tax Rates

The pro rata share of the Commonwealth’s annual $950 million personal property tax relief allocation was based on the effective tax rate for each

locality as of July 1, 1997. The effective tax rate for Martinsville at that time was $1.92/$100 of assessed value. In order to continue to get the annual

PPTRA allocation ($626,428) from the Commonwealth, the Town of Martinsville must still have a personal property tax. However, contrary to the rate suggested in the December 10, 2019 reversion study presentation, that

rate can’t be lower than $1.0583/$100, which is the rate to provide 100% relief on the first $20,000 of assessed value for qualifying vehicles in

Martinsville’s fleet in FY 2021. This rate will change annually based on the number of qualifying vehicles and the assessed values of those qualifying

vehicles.

Estimated Impact on Henry County PPTRA Relief Percentage When the City’s Vehicles Are Added to

the County’s for Tax Assessment

• Henry County’s pro rata share of the capped tax relief amount from the Commonwealth is $1,771,828

• In FY2021 total assessed value of Henry County’s fleet was $347,250,079

• In FY 2021 total assessed value of Martinsville’s fleet was $71,796,920

• Conservatively adding Martinsville’s fleet to Henry County’s could reduce the County’s PPTRA relief percentage to around 23.83% resulting in an increase in the total tax paid by both a County resident and a Town resident (an accurate calculation could not be made due to the lack of specific breakdown of qualifying vehicles in Henry County’s fleet. Assumptions were made based on Martinsville’s breakdown.)

FACT #1: Reverted Town can’t lower the personal property tax rate as low as suggested by the City’s consultantsIf a reverted town intends to accept the PPTRA reimbursement from the Commonwealth, the tax rate cannot be set below an amount that would provide more than 100% tax relief for qualifying vehicles.

So the proposed tax rate of $.75 per $100 of assessed value for vehicles is an incorrect assumption.

The tax rate will change annually. Based on the FY 2021 qualifying fleet, the town tax rate on vehicles would have been $1.0583 per $100 of assessed value. This is the rate that would have provided 100% relief to all City qualifying vehicles on the first $20,000 of value.

Current Tax on Personal Use Vehicle that Qualifies for Personal Property Tax Relief

Current City Tax Rate is $2.30/$100 of value

Relief rate was 49.33% in 2020

Average Value of City Qualifying Toyota Camry in 2020 was $4,572

2020 Total Tax After Relief: $53.29

Current County Tax Rate is $1.55/$100 of value

Relief rate was 38.51% in 2020

Using the same average value for a Qualifying Toyota Camry in Henry County ($4,572)

2020 Total Average Tax after Relief:$43.58

Martinsville Resident Henry County Resident

Tax on Personal Use Vehicle that Qualifies for Personal Property Tax Relief After Reversion

Henry County Tax Rate for Martinsville Town resident would be: $1.55/$100Relief rate would be:23.83%

Town Tax Rate would be: $1.0583Tax Before Relief: $48.39Relief rate would be: 100% for qualifying vehicles

Tax After Relief: $53.98 (an increase of $.69, even though the tax rate is lower than it had been) Town residents with qualifying vehicles would get 100% relief on the Town Tax; Town residents/businesses with non-qualifying vehicles pay both locality taxes($119.26, a $14.00 increase over the tax paid as a city resident/business!)

Current County Tax Rate is $1.55/$100 of value

Relief rate adjusted for Martinsville Fleet: 23.83%

Tax before relief: $70.87

Tax after Relief:$53.98 (an increase of $10.40)

Average Value of Martinsville Qualifying Toyota Camry in 2020 was $4,572

Tax on Non-Qualifying Vehicle (RVs, Campers, Trailers, Boats, Business-Use Vehicles)

Current Tax for City of Martinsville $2.30 per $100 of assessed value. These vehicles DO NOT qualify for tax relief and pay the full personal property tax. Current tax on property assessed at $10,000 = $230

Town of Martinsville Property Owners will pay the FULL Henry Co. tax PLUS the FULL Town of Martinsville tax. Assume property with assessed value of $10,000. Henry Co. Tax is $155. Town Tax rate is assumed to be lowered to $1.0583, which is the rate necessary to provide 100% relief on qualifying vehicles, so Town Tax on same vehicle is $105.83

Combined tax on the property for Town Residents: $260.83, a 13.4% INCREASE!

Fact #2: Business Property Tax on Businesses in the Town will actually increaseThe December 10, 2019 study did not factor in the difference between the business depreciation schedules currently utilized by the Martinsville Commissioner of the Revenue and the depreciation schedule adopted by Henry County several years ago.

After a reversion, the County Commissioner of the Revenue will do assessments for the Town of Martinsville based on the valuation methods adopted by the Henry County office.

The combined tax paid by businesses to the reverted town and the county will be more than they currently pay due to the increase in value created by the depreciation schedule utilized by Henry County.

Though the City has a higher tax rate than Henry Co. the City depreciates

business property over a longer period and has a lower residual value for older

property still in use by the business. Consequently, the lowered depreciated

value coupled with the City’s tax rate results in a lowered tax bill for a business

that keeps their property for a long time and does not replace it.

A business chose the City of Martinsville over Henry County to expand their warehouse space due to the economic incentives that they received in the first few years in an Enterprise Zone in the Clearview Industrial Park and the City’s depreciation schedule in the later years.

Comparison of Martinsville & Henry County Depreciation on Original Cost

City of Martinsville

Year Business Equipment Computer Equipment

1st 90% 70%

2nd 80% 50%

3rd 70% 30%

4th 60% 15%

5th 50% 10%

6th 40% 5%

7th 30% 5%

8th & Beyond 25% 5%

Henry County

Year Business Equipment Computer Equipment

1st 97% 97%

2nd 87% 87%

3rd 77% 77%

4th 67% 67%

5th & Beyond 57% 57%

Business that relocated to city because of depreciation rate for business equipment and economic incentives. County Depreciation Rate Increases Combined Tax Paid despite “neutralized” tax rate suggested by consultants.

County Tax ($1.55) Town Tax (Rate) Combined Tax

PP1 = $ 498.02 $ 340.03 ($1.0583) $ 838.05

PP2 = $2,835.54 $1,372.04 ($.75) $4,207.58

PP4 = $ 16.72 $ 8.09 ($.75) $ 24.81

TOTAL= $3,350.28 $1,720.16 $5,070.44

Henry Co. Assessed Values

PP1 = 32,130

PP2 = 182,938

PP4 = 1,079

TOT = 216,147

City Manufacturer – County Depreciation Rate Increases Combined Tax Paid despite “neutralized” tax rate suggested by consultants

County Tax ($1.55) Town Tax (Rate) Combined Tax

PP1 = $ 109.59 $ 74.82 ($1.0583) $ 184.41

PP3 = $45,729.53 $ 8,850.96 ($.30) $54,580.90

TOTAL= $45,839.53 $8,925.78 $54,765.31

Henry Co. Assessed Values

PP1 = 7,070

PP3 = 2,950,319

TOT = 2,957,389

City Restaurant -- County Depreciation Rate Increases Combined Tax Paid despite “neutralized” tax rate suggested by consultants

County Tax ($1.55) Town Tax (Rate) Combined Tax

PP1 = $1,994.70 $1,361.93 ($1.0583) $3,356.63

PP2 = $3,101.61 $1,500.78 ($.75) $4,602.39

PP4 = $ 49.60 $ 24.00 ($.75) $ 73.60

TOTAL= $5,145.91 $2,886.71 $8,032.62

Henry Co. Assessed Values

PP1 = 128,690

PP2 = 200,104

PP4 = 3,200

TOT = 331,994

Unintended Consequences?

Fact #3: Town Businesses will only be licensed by the Town• BPOL (Business, Professional & Occupational Licenses) will not be

doubled under a reverted town as many City business owners have assumed and feared.

• County businesses located in a future annexed area of the County that becomes part of the Town will pay their BPOL taxes to the Town and no longer to Henry County.

BPOL (Business, Professional & Occupational Licenses)

• Reversion will not change business license rates.

• Unlike the business taxes, there is no double taxation. Henry County may not impose a business license requirement within a Town of Martinsville, if the Town charter continues to authorize this tax.

• However, a Town Council may elect to:• Reduce rates for the business licenses (current state statutes stipulate that once a

BPOL rate is reduced it may not be increased at a later time.)• Move to a flat fee for every license (Town of Bedford moved to an annual flat fee of

$30. Doing this in Martinsville would create a revenue loss for the town of $1.8 million annually. The real estate rate would have to increase $.29 to make up this revenue loss.)

• Or eliminate all together (this would also create a revenue loss to the town of $1.846 million annually.)

Fact #4: Town Residents Will Pay a Real Estate Tax to the Town AND Henry County• Town residents will pay a real estate tax to the town and a separate tax to

Henry County• The City’s consultants suggested a “revenue neutral” tax rate of

$.04571/$100 of assessed value in the December 10, 2019 presentation for Town Residents and a 5₵ increase ($.605/$100) to Henry County’s tax rate

• Henry County’s response submitted to the Commission on Local Government regarding Martinsville’s Notice of Intent to Petition for an Order Granting it Town Status indicated that Henry County’s post-reversion revenues will be insufficient to cover their post-reversion expenditures requiring an 8₵ increase to $.63/$100 of value.

• The Town could lower the town tax rate to continue to make the tax rate “revenue neutral” for Town Residents, but County Residents would realize a 13.5% tax increase

Real Estate TaxMartinsville Tax Rate

Current Rate is $1.0621 per $100 of assessed value

Henry County Tax Rate

Current Rate is $.555 per $100 of assessed value

• Under reversion, Henry County would assess all real estate in the Town of Martinsville and Henry County on a four-year cycle. The Town values would be provided to the Town Treasurer for billing at the Town tax rate. Town residents would receive and pay both the Town real estate tax bill AND the Henry County real estate tax bill based on Henry County’s value assessment, but at the two separate rates and to the two separate localities.

• In the December 2019 reversion study, consultants suggested a “revenue neutral” Town tax rate of $0.4571. Henry County residents will see an increase in their real estate tax bills to $0.605 to cover the additional expenses of the expanded services that the County must provide, according to the city’s consultants. In Henry County’s response to the City’s Notice of Intent to Revert to a town, the County estimates an increased tax rate of $0.63 is actually necessary to cover the additional expenses that they will be forced to absorb due to the City’s reversion to a town.

• Estimated rates for both localities will be determined on the annual budget requirements for the cost of services each locality provides.

Fact #5: Town Residents Who Receive Tax Relief for the Elderly and Disabled Will Have to Pay More in Real Estate Tax

• Henry County provides less real estate tax relief to qualifying elderly and disabled property owners in the County due to County’s lower tax rate.

• Unless the Town administers their own relief program, 39 of the City’s current relief recipients would receive NO tax relief under the County’s program. Currently these 39 recipients receive an annual average relief amount of $239.50 each in real estate tax relief.

• The remaining recipients in the City’s program would all realize some kind of reduction in relief due to the lowered income brackets in Henry County’s program.

Real Estate Tax Relief for the Elderly & Disabled

City of Martinsville Income Brackets & Relief Percentage

(Maximum Amount of Relief is $400 Annually)

Henry County Income Brackets &Relief Percentage

(Maximum Amount of Relief is $300 Annually)

Income Bracket Relief Percentage

$0 - $12,500 100%

$12,501 - $14,500 90%

$14,501 - $15,825 80%

$15,826 - $17,500 70%

$17,501 - $19,150 60%

$19,151 - $20,825 50%

$20,826 - $22,500 40%

$22,501 - $24,150 30%

$24,151 - $25,825 20%

$25,826 - $27,500 10%

Income Bracket Relief Percentage

$0 - $9,000 90%

$9,001 - $9,961 80%

$9,962 - $11,000 70%

$11,001 - $12,000 60%

$12,001 - $13,000 50%

$13,001 - $14,000 40%

$14,001 - $15,000 30%

$15,001 - $16,000 20%

$16,001 - $17,000 10%

Using the Henry County Total Income Ranges Below is the Impact on Current Qualifying Martinsville Residents:

Total H.C. Income Range

Percentage Exemption

MartinsvilleResidents Affected

Average Annual City Relief Allocated/ Recipient

What Average Annual Relief / Recipient Would Be Under H.C.

Model

$0 - $9,000 90% 43 $344.45 $297.70

$9,001 - $9,961 80% 7 $388.10 $300.00

$9,962 - $11,000 70% 15 $337.53 $292.75

$11,001 - $12,000 60% 7 $396.11 $300.00

$12,001 - $13,000 50% 12 $356.38 $289.83

$13,001 - $14,000 40% 13 $339.36 $213.28

$14,001 - $15,000 30% 13 $361.34 $285.00

$15,001 - $16,000 20% 7 $346.92 $258.26

$16,001 - $17,000 10% 8 $394.97 $145.23

$17,001 - $27,500 (Martinsville Range not provided by HC

0% 39 will not qualify at all

$239.53 $0

Total Relief $48,742.70 $31,072.45

Summary of Tax Impacts due to Martinsville ReversionMartinsville Impacts:

• Combined Real Estate Tax would be the same as the current tax or slightly more, depending on rates adopted by both localities, but there WILL be two tax bills (one from each locality)

• Estimated 25% Decrease in Real Estate Tax Relief Provided for Elderly and Disabled

• 1.13% Increase in Personal Property Tax for Vehicles that Qualify for Personal Property Tax Relief (PPTRA qualifying vehicles in Martinsville will get relief for 100% of the town tax, but the county reduced relief rate creates a tax increase for town residents who pay personal property tax to both the county and the town)

• Estimated 13.29% Increase in Tax on Non-qualifying Personal Property (Boats, RVs, Business Vehicles, Trailers, Vehicles Assessed Over $20,000)

• Significant Increase (tax doubles or triples depending on Town tax rate set, age of asset, and type of asset) for Business Tangible Personal Property Tax

Henry County Impacts:• 13.5% Increase in Real Estate

Tax Rate• Estimated 19.28% Increase in

Personal Property Tax for PPTRA Qualifying Vehicles

• No Change on Business Taxes Except Real Estate Increase

• Significant Tax Increase for County Businesses in any Proposed Annexed Area

“I have a basic belief that if you have the right facts you’re probably going to make the right decision.”

-- Ohio Governor, Mike DeWine